When Facebook Inc (NASDAQ: FB) bought Instagram for $1 billion in 2012, skeptics on Wall Street argued that the company had overpaid for a two-year old startup with only 13 employees. However, the tide has changed and now even the erstwhile skeptics are praising the "wise" decision that the company made then. Cowen and Company recently valued Instagram at $33 billion.

Senior Analyst John Blackledge was on CNBC Friday to explain the reasoning behind awarding Instagram with such a valuation.

How Did You Reached The $33 Billion Number?

“We got to the $33 billion by taking a 10 percent discount to Twitter on an EV basis and we feel pretty comfortable with that number, basically because Instagram is bigger than Twitter and they are growing faster than Twitter. User growth last year actually accelerated,” Blackledge, said. “Instagram ended 2014 with 300 million users versus 200 million in March, adding 400,000 users a day accelerating from prior year, phenomenal growth. So, user growth there and we did a Cowen ad-buyer survey, suggested very strong demand for Instagram.”

He continued, “We asked advertisers, 'which platform did you not advertise on last year that you expect to advertise on in 2015' and Instagram was number one. Thirty percent of all the advertisers expect to advertise on the platform and we have sighted fast-growing users, high engagement and brand affinity. So, we feel very comfortable with that estimate and frankly it could be a little bit low based on kind of our proprietary work.”

More Bullish On Facebook

“The work that we did got us more bullish on Facebook. Basically we think there’s 23 to 36 percent upside to Facebook shares right now and ultimately we think over the long-term with the shift of the $200 billion global TV ad market to digital, with core Facebook, Instagram will be a big beneficiary,” Blackledge, added.